The case was brought by Wei Zhu, a software engineer who used
the company's NetTrader facility to sell his shares on-line. He
placed an order to sell 4,000 shares, but immediately cancelled the
transaction.
Wei Zhu alleged that he received a message indicating that 200
of the shares had been sold by the time he made the cancellation.
He claimed that the cancellation of the remaining 3,800 was not
confirmed, so he placed a new order to sell them, after waiting for
five minutes.
It turned out, however, that the cancellation of the remaining
shares was not complete, and he had placed duplicate orders. Mr Zhu
then contacted a Merrill Lynch customer advisor by telephone, and
he was told that he had no option but to buy back the 3,800 shares.
He eventually lost the sum of about $9,768 because, by the time he
bought the shares back, their price had increased.
Merrill Lynch denied any responsibility for the incident. The
company claimed that it has placed disclaimers on its web site,
warning users that it cannot be responsible for errors or
omissions.
Other disclaimers advise customers requesting cancellations of
transactions to wait for confirmation and, if this does not happen,
to contact their local Merrill Lynch Office. Finally, Merrill Lynch
alleged, all its clients were bound by these disclaimers, as
provided in its user terms and conditions.
Mr Zhu, on the other hand, claimed that the disclaimers never
appeared on his computer screen and he was therefore not bound by
the user agreement.
The Canadian court ruled against Merrill Lynch. The disclaimers
in dispute were deemed to be an agreement which "virtually
eliminates liability for inaccuracy in the performance of the
services contracted for by the customer", and "exonerates the
broker from acts of... gross negligence." It was therefore decided
that the disclaimers were unenforceable.
The court also characterised the company's computer system as
"faulty", since it was "incapable of giving to a customer a simple
instruction that he should not continue with a request for a trade
or cancellation". For this reason, it was decided that Merrill
Lynch's computer system was unable to provide "the reasonable level
of performance" to which the customer was entitled.
The court therefore found the company liable for the incident
and ruled that Zhu was entitled to compensation and filing
fees.
The decision is available at:
www.provincialcourt.bc.ca/judgments/pc/2002/05/p02%5F0535.htm
